Is IBM “a Disaster in the Making”?

There’s been a lot of commentary and criticism in the news recently about IBM’s business strategy when it comes to cloud computing.  A recent example of this is Seeking Alpha’s published article entitled “IBM: a Disaster in the Making”.

Whilst it’s true that most criticism towards IBM’s cloud strategy comes from financial investment publications or market commentators, there is definitely an overspill of sentiment from such commentary into the world of business IT – and how CIOs, CTOs and technology decision makers then perceive the vendor in question.

IBM are certainly big and bad enough to ride both the ups and downs of positive and less-than-positive commentaries, so leaping to IBM’s defence is certainly not what this commentary is about.

Rather more we have spotted a handful of inaccuracies in the reporting that demonstrate an underlying misconception in the market about what cloud computing is, and also how particular vendors are strategizing in order to set the agenda and compete in the global cloud computing market.

If there’s any vendor or cloud service provider that’s been mis-represented, we’d be only too pleased to allow them to use as a platform for setting the record straight or telling the business IT community where they are heading.  We’re here to assist the business IT sector to evaluate and compare providers, and provider strategy is a big part of any selection process.

So IBM copped some flack, but these are the specific areas we picked up on and wanted to discuss:

Claim 1:  IBM’s cloud business model is based on selling ‘on-premise’ computing – which includes “private” clouds, and ultimately ignores the huge revenue opportunities of utility-based public cloud services.

It’s clear to us that IBM actually has a huge stake in both types of cloud provision.  They can provide you with standard off-the shelf x86 Intel servers which serve as cost-competitive “building bricks” for your own corporate data centre requirements, or for service providers building out either private clouds (dedicated to a particular customer) or public clouds (serving multiple customers).  Moving up the IBM system portfolio they also have their “Data Centre – or Cloud – in-a-box” type of pre-configured turn-key solution – Pure Systems.

Again this can be used to deploy either private or public clouds, but conveniently it comes with the IBM software stack pre-deployed which is a decent value-add for service providers looking to address real-world corporate computing requirements.  Furthermore, there is IBM’s SmartCloud which itself is entirely a public cloud operated by IBM themselves, which is a direct competitor or alternative to the utility-based Infrastructure as a Service (IaaS) models of Amazon, Microsoft and other international public cloud plays.

Claim 2:  IBM can’t compete with cheap rented computing power.  IBM need to sell a box.

Rented computing power refers to the ultra-competitive IaaS market, which many people would like to believe, is at the core of cloud computing – and subsequently determines the winners and losers in the field.  In truth, IaaS is simply computing hardware virtualised.  IBM’s hardware business has never been about hitting the lowest price point.  In the same fashion, their Cloud services business is not about hitting the lowest price point.

Through SmartCloud IBM offer rented computing power, and whether it’s cheap or not is almost immaterial, the clue is in the “Smart” component of the name.  IBM’s strategy is to differentiate with value-add, and this is largely based on providing access to their expansive software portfolio.  So IBM see the cloud opportunity not in chasing the lowest price point but delivering business-enablement through having a more functional product that cares less about GHz and GB, and more about solutions for businesses.   And at the end of the day, you can have the lowest price on compute power, but you still need to run some apps to get anything done!

Claim 3:  IBM has ceded the low-margin public cloud market to others, and has focused on the private cloud market which is a strategy doomed to fail.

This is a close re-iteration of claim 1 where we countered that IBM is directly and indirectly involved in both public and private clouds.  However it’s the claim that a vendor strategies targeting private cloud are “doomed to fail” which we’d call into question.  We know a lot of cloud and managed service providers – large and small – that are focussing on private and on-premise clouds because there is a huge opportunity there.  Sure private clouds may not have the on-tap scalability or low price points of public clouds, but this ignores the flipside which is greater control, visibility and accountability. Some businesses – frequently very large businesses – have to choose private cloud for reasons which may be regulatory or simply cultural. In fact we’d stake that any business that historically bought IBM ThinkPad laptops will (or will soon) have a private cloud solution somewhere in their IT delivery model.

Claim 4:  IBM’s long-term prospects are troublesome because – as venture capitalists will tell you – entrepreneurs and start-ups are all building their IT infrastructure in the public cloud.

Start-ups and entrepreneurs may well be the stars of tomorrow, but are they reflective of the rest of the business IT community and what it’s up to?  Start-ups are often operating on ultra-tight budgets and the next Facebook certainly needs to be able to scale on demand – so yes, public cloud makes a lot of sense for these businesses.  As businesses mature, their computing requirements become a lot more complex.

It’s less about finding the lowest price per GB and more about ensuring enterprise levels of performance, security and ultimately deploying IT which improves efficiency and delivers ROI across the business.  Public cloud operators across the world recognise this which is why the more savvy providers are differentiating themselves by attaining compliance certifications, focussing on security, providing extra layers of in-built redundancy, tapping new markets, or investing in the software stack and providing platforms (PaaS).

Claim 5:  The emergence of the public cloud materially changes IBM’s competitive environment

The emergence of cloud has materially changes everyone’s competitive environment.  There are plenty of big established businesses which were built on the back of traditional hardware and/or software sales, which now have to adapt to “the cloud model”.

The cloud model certainly allows new entrants to gain traction quickly and gain market share. And indeed it’s certainly fair to say that the cloud in general encourages competition and innovation.  The key here though is not chasing the lowest price per GB, the key is innovation and delivering real-world business solutions for real businesses.  Whether IBM is delivering innovation and real-world business solutions for real businesses – well (as a technology professional) you are the best judge of that.

Andrew McLean Headshot
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Andrew McLean is the Studio Director at Disruptive Live, a Compare the Cloud brand. He is an experienced leader in the technology industry, with a background in delivering innovative & engaging live events. Andrew has a wealth of experience in producing engaging content, from live shows and webinars to roundtables and panel discussions. He has a passion for helping businesses understand the latest trends and technologies, and how they can be applied to drive growth and innovation.

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